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Saudi Arabia’s efforts on Combating

combating money laundering and money
laundering
terrorist financing
(Review undertaken in September 2017) 233
Mohammed Ahmad Naheem
Mayfair Compliance, Frankfurt, Germany

Abstract
Purpose – This paper aims to study Saudi Arabia’s approach to combat money laundering and terrorist
financing through legislation, regulation and implementation. Saudi Arabia is an integral part of the global
economy and energy market. Saudi Arabia is also an important nexus for incoming foreign investment in
the
region. The country has, for many years, confronted negative exposure on challenging money laundering and
terrorist financing. This paper analyses Saudi Arabia’s efforts to maintain international standards of AML/CTF
and distinguishes regulatory practice from the existing comments and conjecture on the country’s performance.
Design/methodology/approach – The paper uses a qualitative study of Saudi Arabia’s approach to
combat money laundering and terrorist financing. The approach is spread across three stages of AML/CTF
policy – namely, legislative, regulatory and implementation. Further, the paper also uses independent
evaluation to understand Saudi Arabia’s performance in comparison to the international standards of good
AML/CTF practice. Findings – The paper finds Saudi Arabia in compliance with international standards of
AML/CTF practice. The paper also traces strengthening of AML/CTF-related legislation and regulation in Saudi
Arabia over the past
two decades. The paper also finds significant evidence that suggests a biased representation of Saudi
Arabia’s AML/CTF practices. The factual analysis of Saudi Arabia and its AML/CTF practice is in
contradiction of the established discourse on the country’s money laundering and terrorist financing risk
profile.
Practical implications – The paper presents a legislative and regulatory analysis of Saudi Arabia’s
AML/CTF practice. It is important to understand the implications of injudicious conjecture on Saudi
Arabia’s financial strategy to diversify the country’s economy (Mouawad, 2005). Commentators and
observers must consider the evidence presented in this paper and reassess the discourse regarding Saudi
Arabia’s adherence to international standards of AML/CTF.
Originality/value – Understanding Saudi Arabia’s approach to combat money laundering and terrorist
financing is essential to the factors that maintain stability in the Middle East. Saudi Arabia has participated
in the region with government forces to maintain stability. The paper examines the overall risk as per
international standards, which can be attributed to Saudi Arabia’s AML/CTF profile.
Keywords Saudi Arabia, Anti-money laundering, Combating terrorist financing (CTF),
Financial intelligence units (FIUs), MENAFATF
Paper type Research paper

The author explicitly states that this research article is not a propaganda piece and in no way has the
author received any form of funding or assistance from any party towards this piece of research.
This paper sets out an approach to review Saudi Arabia from an independent academic
Journal of Money Laundering
perspective, employing tools that separate AML/CTF analysis from media opinion. Control
All the content within this paper was current at the time of being authored (September 2017). Vol. 22 No. 2, 2019
pp. 233-246
The international political climate has evolved since then, with new material from research also © Emerald Publishing Limited
emerging. These points need to be taken into consideration when reading this paper. 1368-5201
DOI 10.1108/JMLC-10-2018-0065
JMLC Introduction
22,2 Saudi Arabia is an important regional entity in the Middle East and Arabian Gulf. The
country is a member of the Gulf Cooperation Council (GCC) and is also operating
the coalition forces that are assisting the Yemen government. Saudi Arabia is one of the
world’s largest exporters of crude oil (OPEC, 2015). In addition, the city of Mecca, which
234 hosts the annual Hajj pilgrimage is situated in Saudi Arabia. The country is the most
important economic, social, religious and cultural centre for the entire Islamic world and the
region’s population. The existing published discourse on Saudi Arabia’s efforts to combat
money laundering and terrorist financing have seemingly presented significant
uncertainty on the country’s efforts to bolster regulatory mechanisms. Blanchard and
Prados (2007) found there to be significant deficiencies in Saudi Arabia’s AML/CTF
mechanism, presenting evidence of network conduits exploited by terrorist organisation
before 2003,
after which the kingdom began taking huge steps to combat such gaps. The Financial
Action Task Force (FATF) conducted a mutual evaluation report of Saudi Arabia in 2010,
finding significant compliance to international recommendations. Observers must
understand that the independent advisory bodies and the frameworks they create are
important sources in assisting countries establish strong AML/CTF standards. As such,
methodological evolution, some of which may occur through technology, of money
laundering and terrorist financing mechanisms presents significant difficulty to create
effective mechanisms for countries across the globe. There is further regulatory delay in
application of legislation, which can often put pressure on countries to expedite the
implementation process.
This paper attempts to present a comprehensive analysis of Saudi Arabia’s legislative
and regulatory approach to combat money laundering and terrorist financing. The paper
also studies the country’s implementation of these rules on financial institutions, banks,
charities and individuals. This analysis attempts to encourage observers to reassess the
current discourse regarding Saudi Arabia’s AML/CTF mechanism and further
the discussion regarding the evolution of international standards. A note regarding the
structure of the paper. Section 1 discusses Saudi Arabia’s financial regulatory mechanism.
The mechanism presents an accurate structure of the regulatory role and functioning in
the country. Section 2 analyses Saudi Arabia’s AML/CTF laws and regulations. The
laws are also assessed on their compliance to international standards. The section also
discusses the country’s internal risk assessment module and reporting mechanism. Section 3
studies Saudi Arabia’s implementation of established AML/CTF rules. Collection of
suspicious transaction reports (STRs) and penalties imposed against financial institutions,
banks and charities are an important factor to this discussion. Section 4 presents
independent assessment of Saudi Arabia’s AML/CTF framework. The FATF’s Mutual
Evaluation Report and the US INCS Report are important sources of literature in this
discussion (see (FATF, 2010) and (US State Department)).

Saudi Arabia’s banking and financial system

To understand the level of legislative and regulatory implementation, it is important to
note the structure of governance that enforces AML/CTF rules in the country. Saudi
Arabia’s AML/CTF regulators can broadly be divided across five departments – including
the Saudi Arabian Monetary Authority (SAMA), Capital Markets Authority of Saudi
Arabia (CMA)
and the Saudi Customs Authority. Currently the country is also underway to complete the
construction of an enormous financial centre, the King Abdullah Financial District (KAFD),
which would be regulated by an additional independent body (Paul and Torchia, 2017).
 SAMA was established in 1952 after the state took control of its own monetary policy.
SAMA acts as the country’s central bank and regulates the banking sector. SAMA has full Combating
autonomy regarding monetary policy and is organised with a governor, a vice-governor and money
three members from the private sector (Royal Decree No. 23, 1957). SAMA also regulates the laundering
insurance market in the country and has issued separate rules for banking, financial and
insurance companies. SAMA’s AML/CTF regulation is discussed in the following section.
The CMA regulates all capital markets in Saudi Arabia, including the country’s single
stock exchange, Tadawul. The organisation was created in 2003 to enforce Capital Market 235
Law in the country. The CMA is also responsible for ensuring that firms are participating
in AML/CTF modules, with substantial risk assessment mechanisms. The CMA has
also established rules on AML/CTF in the capital markets and carries out the role of
imposing the regulations.
In addition to SAMA and CMA, Saudi Customs is responsible for regulating the
incoming and outgoing trade in the country. Customs authorities also monitor the
incoming and outgoing physical cash and plays an important part in regulating trade-
based money laundering (TBML) (Naheem, 2016, 2017). TBML is a growing systemic risk
and is being widely used by criminal organisations to launder money. Mauro (2015)
states “sophistication” of the process makes the process “widely used”, which can further be
applied
“to any good”, ranging from “rocket launchers” to “apparel”. Saudi Customs is also
responsible for monitoring the gold trade in the country. The FATF (2014) recognises the
AML/CTF risks of gold in the Middle East and North Africa region (MENA).
Saudi Arabia also has two independent AML/CTF specialised organisations – the Anti-
Money Laundering (AML) Committee and the Saudi Arabia Financial Intelligence Unit
(SAFIU). The AML Committee is responsible for implementing policy to align the
country’s regulation with the FATF’s 40 9 Recommendations (Council of Ministers
Resolution No. 15, 17/1/1420þ H). The SAFIU was established in in 2003 with the
responsibility of receiving,
analysing and presenting STRs received from financial and non-financial institutions
(Royal Decree No. M/39, 2003).
SAMA is largely responsible for regulating Saudi Arabia’s domestic economy, including
banks, financial institutions and insurance firms. SAMA is also responsible for the
country’s monetary policy. The Capital Market Law in Saudi Arabia is implemented by
the CMA, which also implements AML/CTF rules on the country’s sole stock
exchange. Saudi Customs plays an important role in establishing cross-border monitoring
of illicit funds and goods (i.e. TBML due to false invoicing). The country’s AML/CTF
regulation is bolstered by the AML Committee and the SAFIU. The AML committee
ensures that the country maintains þ compliance to the FATF’s 40 9
Recommendations. The SAFIU receives all STRs from financial and non-financial
institutions, analysing and publishing the data. The following section discusses Saudi
Arabia’s laws and regulations, which are implemented by the regulators.

AML/CTF law and regulatory mechanisms

To understand Saudi Arabia’s AML/CTF standards, the paper analyses, first, Saudi
Arabia’s laws on combatting money laundering and terrorist financing. Second, the paper
analyses the rules implemented by regulations, because of the laws enacted by the state.
Standards demanding risk-averse strategies and customer due diligence are an important
part of this section’s analysis. Saudi Arabia has strengthened its AML/CTF legislation at
several intervals across the past two decades. The country has closely worked in
assistance with the FATF and has established multilateral partnerships with associate
FIUs and law enforcement agencies.
JMLC Saudi Arabia first enacted an “Anti-Money Laundering Law” in 2003 (Royal Decree No.
22,2 M/39, 2003). The law criminalised that act of money laundering and established a nexus
in the country’s legal system with the association of an individual or firm to illicit funds as
a “criminal activity” (Royal Decree No. M/39, 2003). The law also criminalised financing
of terrorism under Article 7, establishing a reporting mechanism for STRs (Royal Decree
No.
236 M/39, 2003: Article 7 and Article 11). The law further requires financial institutions to enact
internal policies on developing risk-averse products and employee training modules. The
law on AML/CTF was replaced in 2011 (Royal Decree No. M/31, 2011) to incorporate
recommendations from the FATF’s mutual evaluation report (FATF, 2010). The revision
added new sections establishing the regulatory roles of various sectoral regulators in
establishing and implementing specified rules (Royal Decree No. M/31, 2011). The new
law also required enhanced customer diligence and verification of unusual transactions.
SAMA implements AML/CTF rules on banks and insurance companies. SAMA operates
two different sets of regulations for banks and insurance companies. The regulations for
both define the functioning of terrorist financing and money laundering. The rules also
require banks and insurance companies to conduct risk assessment on their products. Banks
and insurance companies must develop annual internal policies that evolve the internal
organisational structure and make the financial products risk-free (SAMA, 2012, p. 17).
The regulation also requires internal verification mechanisms of employees with
facilitation of record maintenance and an internal audit department (SAMA, 2012, p. 18).
The rules also require banks and insurance companies to conduct customer due diligence or
“Know Your Customer” (KYC) mechanisms (SAMA, 2012, pp. 19-20). CDD or KYC requires
banks and firms to verify the legal identity of a customer and the legal source of income or
business. The rules also require banks to notify SAMA before opening an account for non-
GCC residents. Banks are also required to perform enhanced diligence in case of politically
exposed persons (PEPs) or an individual holding public office (SAMA, 2012, p. 22).
Further, banks are required to assess individual customer accounts for ML/TF risks
and prepare a transaction report of each account (SAMA, 2012, p. 25). Further,
SAMA’s regulations prohibit banks from opening accounts for charities, unless the
organisation meets the statutory requirements. The regulation also requires banks and
firms to treat charities as “High Risk” entities (SAMA, 2012: 31). Saudi Arabian banks are also
prohibited from dealing in any transactions with shell banks or hold correspondent
accounts for banks that do not have a physical presence in the jurisdiction they operate
from (SAMA, 2012,
p. 35). Banks are also required to establish adequate reporting mechanisms to report
unusual pattern of transactions, which do not comply with the individual’s legal source of
income. This also includes large amount of cash deposits made to an individual’s bank
account (SAMA, 2012: 37).
In addition, the rules require all banks and institutions to have an internal money
laundering control unit (MLCU) or a compliance officer, who receives internal STRs and
forwards the details to relevant law enforcement authorities and the financial intelligence
unit (SAMA, 2017, p. 39). The rules also require internal review and training modules, which
require annual publication of product risk assessment, STRs and employee training and
awareness (SAMA, 2017, pp. 43-45). Banks must obtain beneficiary names before
engaging in a cross-border or wire transaction. Incoming remittances must include the
name of the bank, location of bank and name of sender to verify the funds (SAMA, 2017,
pp. 48-49). Banks in Saudi Arabia are also required to assess geographical risks when
engaging in cross-border transaction and perform enhanced due diligence with respect to
countries that
are non-compliant to the FATF’s guidelines, subject to sanctions from the United Nations
or exhibit high ML/TF risk.
 The CMA has separate AML/CTF rules that are applicable to individuals and firms
participating in capital markets and the country’s stock exchange, Tadawul. CMA’s rules Combating
require companies to establish internal AML/CTF policies, which are in accordance with the money
laws of Saudi Arabia. These policies must be applied to subsidiaries, including overseas laundering
subsidiaries (with a majority) to the extent of the host country’s local laws permit (CMA,
2012, p. 6). Companies are further prohibited from taking cash in any form, including for
investment purposes, from a client (CMA, 2012, p. 7). The rule ensures that an
individual’s 237
investment is verified beforehand as per CDD conducted by the banking institute. The
CMA
also requires companies to engage in intensive customer due diligence and only allow
investment after verifying the legal identity of the individual. The company must also
consider the geographical risks associated with a non-resident client (CMA, 2012, p. 8).
Companies must engage in enhanced due diligence for PEPs, companies and non-profit
organisations (NPOs). NPOs may avail a product in the capital market only after receiving
an approval from the government (CMA, 2012, pp. 8-12). Any company acquired by a
company oversees is subject to CMA’s AML/CTF rules, including that of adequate CDD
and product risk assessment. The regulations create the precursor for internal risk
assessment and reporting mechanisms whilst enabling enforcement agencies to identify
suspicious activities. The CMA also offers a list of “indicators” that can help companies
and their employees establish suspicious activity pertaining to money laundering and
terrorist financing (CMA, 2012, pp. 25-29).
Saudi Arabia has taken significant steps to establish, first, a legislative foundation for
AML/CTF practice, and second, a regulatory framework applicable to financial
institutions, banks and firms. The majority of Saudi Arabia’s AML/CTF regulations are
implemented by the SAMA, which is responsible for risk-averse practices in the banking
and insurance market. The CMA implements AML/CTF practices in the country’s
capital markets, including the stock exchange. The CMA and SAMA together have
established a comprehensive selection of rules that suggest a progressive Saudi policy on
AML/CTF. The rules discussed in this section were established after the FATF’s mutual
evaluation report of the country in 2010 (see Section 4) and subsequently, represents the
country compliance to the international framework (FATF, 2010).

Saudi Arabia’s AML/CTF enforcement and implementation

To assess Saudi Arabia’s commitment in establishing a successful AML/CTF mechanism,
the paper now studies the levels of AML/CTF implementation in the country.
Implementation of a policy cannot be quantitatively presented in the context of Saudi
Arabia’s AML/CTF assessment, with the exception of STRs and independent penalties
against individuals and charities. This section weighs Saudi Arabia’s implementation
based on the data made available by the SAFIU and the independent money laundering
cases
recorded. Another important factor that enhances the implementation profile of Saudi
Arabia is the successful advancements made by Saudi Customs in reducing TBML and
other illegal cross-border commodities exchange.
In 2016, Saudi Arabia prosecuted an undisclosed number of its citizens for laundering
nearly US$3.3bn through the informal Hawala system (Arab Business, 2016). The Hawala
system is an important remittance mechanism used by several foreign workers to send
money home, often to locations without formalised banking systems. The Hawala system
is largely based on informal networks that expand across countries and cannot be
formalised. In early 2017, a Saudi businessman was given a siX-year jail term and a
US$800,000 fine for money laundering, after the “defendant’s bank” reported
suspicious transactions to the
relevant authorities (Al-Shabrawi, 2017). Authorities also arrested 32 individuals in 2016 for
JMLC laundering an estimated amount of US$2.5bn through the Hawala system. Investigators
22,2 also found evidence linking some of the accused to the terrorist organisation Islamic state
(Times of India, 2016). In 2015, Saudi Arabia arrested a citizen for laundering over
US$2bn across four countries. The individual could only produce a legitimate income from the
sale of wooden furniture. The individual operated ML operations across India, China,
238 Saudi Arabia and the UAE, until his bank reported unusually large transactions with over
eight bank accounts (Toumi, 2015). Saudi Arabia also sentenced a businessman to a year
in prison for
laundering over US$26m and arrested and deported two expats working with him. The
businessman was found to have engaged in unusually large transactions with domestic
and foreign financial firms, which the bank reported as an STR (Al Arabiya, 2016). The
cases do not present all of Saudi Arabia’s enforcement actions against individuals engaging
in ML/TF
practices. However, readers must observe the functioning of Saudi Arabia’s internal
reporting mechanism, which was used by banks to report suspicious transactions and
activities.
In 2014, Jeddah’s court stated receiving over 53 cases of money laundering in the
calendar year. The cases ranged from laundering non-declared incomes and funds
collected
through illicit means, such as terrorist, criminal or narcotics-related activities (Arab
News, 2014a). In addition, the SAFIU reported a 120 per cent increase in cases of
money laundering. The SAFIU reported receiving over 3,919 STRs and 419 reports of
suspected terrorism financing (Arab News, 2014b). The SAFIU reported a significant
increase in the number of STRs received between 2011 at 202, and for 2014, more than
4,000 STRs (Arab News, 2014b). Saudi Arabia also banned nine charities operating from
Yemen and Libya for alleged ties with the terrorist organisations, Al Qaeda (Hindustan
Times, 2017). The Ministry of Interior, which is home to the SAFIU also advised charities
against collection of donations through cash or kind without the appropriate permit from
the government. The ministry advised charities from collecting illegal donations (Arab News,
2016). Saudi Arabia also banned the charity, Al-Furqan Welfare Trust, after reports
suggested the organisation had changed its name. The authorities banned the organisation
and seized any assets within Saudi Arabia (Reuters, 2015). Saudi Arabia also ratified to the
United Nations Convention against Corruption in 2013 (US State Department, 2014),
which is a legally binding multilateral agreement aimed at preventing corruption,
promoting enforcement, promoting international cooperation, creating asset recovery
mechanisms and facilitating information exchange (UNODC, 2003).
Saudi Arabia has worked constantly on strengthening its AML/CTF mechanisms and
align domestic standards with the international framework. In previous sections, the
paper discussed the laws and regulations, which enabled law enforcement agencies and
regulators to implement AML/CTF practices in their jurisdiction. The increase in STRs
from financial institutions and banks as reported by the SAFIU are an important
indicator of Saudi Arabia’s enforcement success in the past five years. It is possible that
regulatory delay is
responsible for the delayed visible effects of the AML/CTF policy. The section has tried to
elaborate on implementation of AML/CTF rules in Saudi Arabia. This includes the
country’s reporting mechanisms as studied in cases, the prosecution of individuals
engaged in ML/TF activities and the higher standard of monitoring of charities. It is
important to acknowledge the aforementioned cases in establishing the discourse
regarding Saudi Arabia’s implementation of AML/CTF practices. To further ascertain a
third-party assessment of the country’s AML/CTF mechanism, the paper studies
evaluations made by independent
international and intergovernmental organisations in the context of Saudi Arabia’s AML/
CTF enforcement and standard.
International evaluation and assessment of Saudi Arabia’s AML/CTF
framework Combating
The aforementioned sections analysed and discussed three dimensions of domestic AML/ money
CTF efforts in Saudi Arabia, which are the legislative, regulatory and enforcement laundering
analysis. This section uses independent assessments made by organisations and inter-
governmental bodies that specialise in AML/CTF and financial transparency assessment.
For the purpose of this paper, five distinctive evaluations will be considered. First, the
239
FATF’s 40 þ 9 Recommendations and Saudi Arabia’s compliance to the
recommendations. Second, the US International Narcotics Control Strategy Report on
Saudi Arabia and areas of concern. Third, the Basel Anti-Money Laundering (Basel
AML) Index, published by the Basel Institute on Governance. Fourth, the International
Financial Secrecy Index, which helps assess a country’s transparency regarding financial
flows. Fifth, the Corruption Perception Index (CPI), which measures anticipated levels of
corruptions in a country. Together, the five evaluations form the basis of literatures used
by the section in determining Saudi Arabia’s performance to align domestic policy with
international AML/CTF standards.
The FATF was established by members of the G7 to create an intergovernmental
partnership that creates an international framework to combat money laundering and
terrorist financing. In its mechanism, the FATF has an established a list of “Non-
Cooperating Jurisdictions”, which is also known as the “FATF Blacklist” (Euro News,
2008). Countries that are non-compliant to the FATF’s 40þ 9 Recommendations are
placed in this list of “high risk” and “non-cooperating” jurisdictions, which can further
subject the country to sanctions or reduced investor confidence. The FATF conducts a
mutual evaluation report of member and observer countries, assessing them for
compliance to the 40þ9 Recommendations. Saudi Arabia participated in a mutual
evaluation report with the FATF in 2010. The recommendations made by the FATF in
the report were incorporated by the Saudi Arabian government in the AML legislation
enacted in 2011 (see Sections 2 and 3). The report stated finding a comprehensive legal
and regulatory framework in Saudi Arabia’s financial system, with minimal “strategic
deficiencies” in the country’s reporting mechanism, which is applicable on financial
institutions, banks and capital market firms (FATF, 2010). The internal reporting
mechanism requirements and customer due diligence modules were enhanced in the
subsequent revision of AML/CTF legislation in Saudi Arabia (Royal Decree No. M/31,
2011).
The US State Department releases an annual publication, known as the International
Narcotics Control Strategy Report (INCS), which aims to establish geographical risks that
contribute to creation of illicit funds through narcotics trafficking. Until 2014, the INCSR
found Saudi Arabia to be a “jurisdiction of primary concern”. The report found Saudi
Arabia to have enhanced its efforts to monitor banks and financial institutions for illicit
funds and acknowledged the country’s ability to restrict illegal cross-border transportation of
cash and gold (US State Department, 2014). Following 2014, the INCS no longer listed Saudi
Arabia as a jurisdiction of concern, having stated the country’s strong compliance to
international AML/CTF standards (see US State Department, 2015, 2016, 2017),
demonstrating the countries’ success in improving.
Another important organisation that evaluates money laundering and terrorist
financing risks is the Basel Institute on Governance, which publishes the annual Basel
AML Index. The index is spread across a weightage of 65 per cent money laundering and
terrorist financing risk, 10 per cent corruption risk, 15 per cent financial transparency
standards, 5 per cent public accountability and 5 per cent political risk. The weightage is
JMLC further divided to incorporate assessments made by the FATF, US State Department, CPI
22,2 and other financial transparency indices (Basel Institute on Governance, 2017, p. 10). The
Basel AML Index ranks countries in order of increasing risk. For example, the highest
risk country in the index is Iran, ranked first with a score of 8.60 out of 10, whilst the
lowest risk country Finland, ranked 146 th or last, has the lowest score of 3.04. As per the
240 institution’s latest assessment, published in 2017, Saudi Arabia is ranked 93 out of 146
countries with a risk score of 5.43 (Basel Institute on Governance, 2017, p. 3). Saudi
Arabia also finished as one of the top five performers for low AML/CTF risk in the
MENA as per the index (Basel Institute on Governance, 2017, p. 6).
The fourth evaluation we consider is the Financial Secrecy Index (FSI), which ranks
jurisdictions across factors of domestic financial secrecy and offshore financial activities.
The purpose of the FSI in the context of this paper’s analysis is to establish Saudi Arabia’s
financial activities that could account for money laundering or terrorist financing
purpose.
As per the FSI published in 2015, Saudi Arabia is ranked 43rd out of 92 countries with a
FSI score of 163.8 and secrecy score of 61, suggesting a moderate or low financial secrecy
(FSI, 2015).
The final tool used as literature in this section is the CPI. The CPI has been published
annually since 1996 by Transparency International. Lower ranked countries in the CPI
exhibit poor functioning public institutions and high levels of corruption – including
bribery and extortion (Transparency International, 2016). The latest publication of the
index measures and ranks 176 countries by performance in 2016. The index ranks Saudi
Arabia at 62nd with a score of 46 from 100. Saudi Arabia is also amongst the top five
performers as per the CPI from the MENA. Saudi Arabia’s score has fallen compared to
the past year, during which the country recorded a score of 52 (Transparency
International, 2016).
The analysis presented five independent evaluations of Saudi Arabia in accordance
with international standards on AML/CTF and financial transparency. The section
finds Saudi Arabia to be in overall compliance of international standards on combatting
money laundering and terrorist financing. Further, the section finds Saudi Arabia to
have a more financially transparent system with an average level of corruption
anticipated by Transparency International. The assessments also suggest contrary
views to discussions that find Saudi Arabia culpable of financing terrorism. Readers
must note that the paper has used the five indices to incorporate independent unbiased
evaluation in the overall analysis of Saudi Arabia’s AML/CTF infrastructure that this
paper researches.

Conclusion
Saudi Arabia is an important regional entity in the Middle East and has participated
actively in maintaining stability in the region. Further, the country is an important
cultural and social centre in the Middle East. Saudi Arabia functions as an important
financial hub in the region and operates large trading operations that facilitate low-cost
transportation for members of the GCC and the Middle East. It is, therefore, essential to
understand the systemic risks arising from money laundering and terrorist financing
that can permeate Saudi Arabia’s financial and banking system. The paper intended to
present a renewed
discourse on Saudi Arabia’s AML/CTF practice and policy, through examination of primary
and secondary literature. The paper used four qualitative tools to determine Saudi Arabia’s
AML/CTF practices.
First, the paper analysed Saudi Arabia’s legislative approach to combat money
laundering and terrorist financing. The paper has found successive legislations enacted by
the government across a period of ten years to establish a strong precursor for effective
AML/CTF regulation in the country. Saudi Arabia first enacted AML/CTF legislation in Combating
2003, criminalising money laundering and connecting the activity to terrorist financing. The money
law enabled for the system of internal reporting mechanisms and required financial laundering
institutions and banks to engage in internal risk-averse policies (Royal Decree No. M/39,
2003). The legislation created Saudi Arabia’s first policy aimed at combatting terrorist
financing in the country. The legislation was replaced with a more comprehensive model
a 241
decade later. The law, passed in 2011, facilitated a regulatory movement for more strong
internal policies within the financial and banking sector, to combat money laundering and
terrorist financing.
Second, the advances in domestic legislation allowed sectoral regulators, the SAMA
and the CMA to create regulation to govern the banking, insurance and capital markets in
the country. SAMA’s regulations, based on the enhanced law, published in 2012, required
banks and financial institutions to increase internal policy systems that are risk-averse to
money
laundering and terrorist financing. The rules also required stronger internal auditing and
reporting mechanisms, which eventually allowed the SAFIU and the Ministry of Interior to
identify and prosecute individuals engaging in ML/TF activities (SAMA, 2012). The CMA
also based its set of regulations on the legislation enacted in 2011 and encompassed a
more comprehensive approach to reducing ML/TF risks within Saudi Arabia’s capital
markets.
The regulations published by the SAMA and the CMA together form the precursor for
enforcement of Saudi Arabia’s AML/CTF laws.
Third, the institution of strong AML/CTF legislation and regulation in Saudi Arabia
developed a strong enforcement mechanism. The analysis of Saudi Arabia’s
implementation and enforcement of AML/CTF law and regulation is an important factor
in determining the state’s commitment to becoming a low-risk state. Following 2012,
Saudi Arabia recorded an increase of nearly 120 per cent in suspicious transaction
reports received from banks and financial institutions in 2014 (Arab News, 2014b). A
majority of cases presented to discuss Saudi Arabia’s implementation of AML/CTF law
in this paper (see Section 3) were identified through internal reporting mechanisms
within banks and financial institutions. Banks discovered suspicious and unusual
transactions and reported them to the SAFIU and relevant law enforcement agencies for
investigation. Saudi Arabia’s enforcement had also led to a ban on collection of illegal
donations by charities operating in the country. Charities have been advised to not collect
donations in the form of cash or kind, unless after taking prior approvals from the
government (Arab News, 2016). The significant increase in the country of STRs and
prosecutions over the past five years can be attributed to the regulations implemented by
the SAMA and the CMA. The efforts presented in this paper should be acknowledged by
readers and utilised in the assessment of Saudi Arabia’s financial investment climate and
its internal systemic risks.
Fourth, the paper used independent international evaluation of Saudi Arabia’s AML/
CTF infrastructure and its compliance to international standards. For this paper’s
analysis, five distinctive independent evaluations on financial transparency and AML/
CTF mechanisms were used as literature. The FATF’s Mutual Evaluation report on
Saudi Arabia found a “comprehensive” legislative and regulatory mechanism within
the country’s financial system. The report found some areas for improvement with
respect to compliance of the 40þ 9 Recommendations, which Saudi Arabia
incorporated in the 2011 law on AML/CTF (FATF, 2010). Though the FATF’s
evaluation has been regarded as pre-dated to the present context, the Mutual
Evaluation report serves as an important landmark in a state’s discourse of
JMLC implementing effective AML/CTF mechanisms. In addition, terrorist financing
22,2 amounting from narcotics trafficking evaluated through the US State Department’s
INCS Report. The report considered Saudi Arabia to be “a jurisdiction of primary
concern” until 2014 after which the country addressed all the concerns raised.
Subsequent reports do not consider Saudi Arabia to be a jurisdiction of risk (US State
242 Department, 2014 and 2015). The Basel AML Index, which ranks 146 countries in order
of increasing risk, ranked Saudi Arabia as one of the top five performers in the MENA.
The country achieved a low-risk profile and is ranked at 93rd position (Basel Institute
on Governance, 2017). In addition to this, the analysis also discussed Saudi Arabia’s
performance in the FSI, which finds Saudi Arabia to have moderate financial non-
disclosure and ranked 43rd out of 90 countries measured (FSI, 2015). Saudi Arabia is
one of the top five performers in Transparency International’s CPI, ranked at 62 out of
176 countries with a score of 46 (Transparency International, 2016). The five
evaluations together form the international evaluation of Saudi Arabia’s performance
in establishing and maintaining strong AML/CTF practices whilst encouraging
financial transparency and accountability. The analysis also suggests that Saudi
Arabia is one of the strong performers in AML/CTF implementation.
The analysis uses indicators that help assess the overall AML/CTF standards and
practices in Saudi Arabia. These indicators are important, as they not only hold value in
the context of this paper’s theme, but also define the international framework on
combatting money laundering and terrorist financing. Saudi Arabia has long been
portrayed using conjecture under negative consideration by commentators and the
media. The analysis presented in this paper is not an attempt to object the existing
discourse, but to present a factual presentation of the country’s legal, regulatory and
enforcement mechanism that has created a functional and successful AML/CTF system.
The efforts made by Saudi Arabia and its government must be acknowledged, as
independent evaluations, conducted by AML/CTF specialising organisations, further
acts as indication of a compliant and ever improving state. Observers and researchers
must consider two important facts and advance the discussion on Saudi Arabia’s
performance based on them. Firstly, does the analysis satisfy the criteria of a successful
AML/CTF compliant state? Secondly, does the independent analysis, evaluations and
international frameworks not correspond to a low-risk state? The two questions are
important to consider in the development of not only Saudi Arabia’s assessment, but also
the international discourse on money laundering and terrorist financing. Future research
regarding both are advised to consider the foundational framework, per which a state
(within this paper’s context Saudi Arabia) establishes and implements anti-money
laundering and the combatting of terrorist financing mechanisms.
This paper was composed in September 2017 with the intent of building a factual
profile of the Kingdom of Saudi Arabia’s AML/CTF efforts. Over the past few years, the
country has made huge concerted efforts to resolve problems relating to financial crimes.
Under the leadership of King Salman bin Abdulaziz and the Crown Prince Mohammad
bin Salman, the country of Saudi Arabia is witnessing historic reforms, to align the
country with a more liberal approach. Such reforms have not been witnessed in
the Middle East region before. Crown Prince Mohammad bin Salman has become the
youngest defence minister in the world, with the West already dubbing the Crown Prince
to become the region’s next visionary leader, who is aiming at attracting foreign
investment in a financially secure environment (Kerr and Al Omran, 2017). He is also
building a more open relationship between Saudi Arabia and the rest of the world,
garnering social and economic ties.
 Prince Mohammad bin Salman is adamant in seeing through a highly ambitious
modernization plan for the Kingdom of Saudi Arabia to be at the very forefront of the Combating
global economy. The Crown Prince is rigorously working with state agents to shift the money
country’s socioeconomic conservatism with a globally aligned environment. In the context laundering
of broader institutional reform, recent developments in advancing the country’s
AML/CTF structure are highly encouraging. Crown Prince Mohammed bin Salman has
set out a vision to establish a diversified economy. The “Saudi Vision 2030” lays down
political, economic, and 243
social targets for the next decade, focused on reducing the country’s budgetary and
economic dependence on oil rents.
The Crown Prince has already begun implementation on projects that are making
significant progress. Significant investment has been focused towards establishing and
improving key industrial sectors. The current policy advancements will allow Saudi
Arabia to pursue a higher quality of life for all its citizens, while operating a high
standard industrial sector.
The Crown Prince’s efforts since 2017 have continued to exhibit the growing enthusiasm
of a budding vibrant advancing economy through regular progress on massive projects
and
social development programs.
Therefore, this paper aims to dismantle the conjecture and rhetoric that incorrectly
paints a grim and conservative element of the country’s government. Further, this paper
builds on showing a stronger advancing economy, which is highly diversified, removing
the country’s dependency on the petrodollar.
In this paper’s view, the modernization strategy led by Crown Prince Mohammed will
make Saudi Arabia an economic powerhouse in the World with an advanced global
economic infrastructure and as such will become one of the greatest developments a
nation has seen in modern history.

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Further reading
Mouawad, J. (2005), “Saudi Arabia looks past oil in attempt to diversify”, available at: www.nytimes.
com/2005/12/13/business/worldbusiness/saudi-arabia-looks-past-oil-in-attempt-to-diversify.html?
mcubz=1
Naheem, M.A. (2015a), “HSBC Swiss bank accounts-AML compliance and money laundering
implications”, Journal of Financial Regulation and Compliance, Vol. 23 No. 3, pp. 285-297,
available at: https://doi.org/10.1108/JFRC-03-2015-0016
Naheem, M.A. (2015b), “Money laundering using investment companies”, Journal of Money
Laundering Control, Vol. 18 No. 4, pp. 438-446, available at: https://doi.org/10.1108/JMLC-10-
2014-0031
Naheem, M.A. (2015c), “Trade based money laundering: towards a working definition for the
banking sector”, Journal of Money Laundering Control, Vol. 18 No. 4, pp. 513-524, available at:
https://doi. org/10.1108/JMLC-01-2015-0002
Naheem, M.A. (2015d), “Suspicious transaction alerts in AML: the credit Agricole case”, Complinet
(Thomson Reuters), available at: www.complinet.com/global/news/news/article.html?ref=
179394
Naheem, M.A. (2015e), “Trade-based money laundering among biggest banking risks”, Complinet
(Thomson Reuters), available at: www.complinet.com/global/news/news/article.html?ref= Combating
177933 money
Naheem, M.A. (2015f), “Money laundering: a primer for banking staff”, International Journal of laundering
Disclosure and Governance, doi: 10.1057/jdg.2015.10.
Naheem, M.A. (2015g), “AML compliance – a banking nightmare? The HSBC case study”, International
Journal of Disclosure and Governance, Vol. 12, p. 300, available at: https://doi.org/10.1057/
jdg.2015.4 245
Naheem, M.A. (2016a), “Trade based money laundering: a primer for banking staff”, International
Journal of Disclosure and Governance, doi: 10.1057/jdg.2015.10.
Naheem, M.A. (2016b), “Trade based money laundering: exploring the implications for international
banks”, available at: http://wlv.openrepository.com/wlv/handle/2436/620745
Naheem, M.A. (2016c), “Internal audit function and AML compliance: the globalisation of the
internal audit function”, Journal of Money Laundering Control, Vol. 19 No. 4, pp. 459-469,
available at: https://doi.org/10.1108/JMLC-05-2015-0020
Naheem, M.A. (2016d), “Risk of money laundering in the US: HSBC case study”, Journal of Money
Laundering Control, Vol. 19 No. 3, pp. 225-237, available at: https://doi.org/10.1108/JMLC-01-
2015-0003
Naheem, M.A. (2017a), “Suspicious alerts in money laundering – the Crédit Agricole case”, Journal of
Financial Crime, Vol. 24 No. 4, pp. 691-703, available at: https://doi.org/10.1108/JFC-12-2015-
0074
Naheem, M.A. (2017b), “Money laundering and illicit flows from China – the real estate problem”,
Journal of Money Laundering Control, Vol. 20 No. 1, pp. 15-26, available at: https://doi.org/
10.1108/JMLC-08-2015-0030
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10- 2016-0064
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AML systems”, Journal of Money Laundering Control, Vol. 21 No. 2, pp. 189-202, available at:
https://doi.org/10.1108/JMLC-08-2015-0032
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digital technology services”, Journal of Financial Crime, Vol. 25 No. 2, pp. 562-575, available at:
https://doi.org/10.1108/JFC-08-2016-0055
Naheem, M.A. (2018e), “Illicit financial flows: HSBC case study”, Journal of Money Laundering Control,
Vol. 21 No. 2, pp. 231-246, available at: https://doi.org/10.1108/JMLC-08-2015-0036
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Appendix. Laws (Saudi Arabia) cited

Council of Ministers Resolution No. 15 (2000), Saudi Arabia Anti-Money Laundering Committee,
available at: www.sama.gov.sa/en-US/AntiMoney/Pages/Home.asp X
JMLC Royal Decree No. 23 (1957), Saudi Arabian Monetary Authority, available at: www.sama.gov.sa/en-US/
22,2 Laws/BankingRules/Charter%20of%20the%20Saudi%20Arabian%20Monetary%20Agency.docX
Royal Decree No. M/39 (2003), Anti-Money Laundering Law, available at: www.anti-
moneylaundering. org/middleeast/Saudi_Arabia.aspX
Royal Decree No. M/31 (2011), Anti-Money Laundering Law, available at: www.boe.gov.sa/
ViewSystemDetails.aspX?lang=en&SystemID=29&VersionID=280
246
About the author
Dr Mohammed Ahmad Naheem (BSc (Hons), MSc, PhD, CPFA, CMIIA, QIAL, CMgr, FCMI) is an
EXecutive Consultant specialising in Trade Based Money Laundering (TBML) and Crypto Currency
regulation, contracted exclusively to Mayfair Compliance (www.mayfaircompliance.com).
Mohammed Ahmad Naheem can be contacted at: m.a.naheem@mayfaircompliance.com

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